Much has been discussed, argued and debated on demonetisation and the Goods and Services Tax (GST) implementation at various forums including election campaigns. Opposition parties slammed both the moves of Prime Minister Narendra Modi, though the latter managed to hit headlines on Thursday again after the Pew Research Centre’s survey announced him as ‘very popular’.

Without taking names or giving political colour, a panel discussion on ‘Dialogue on demonetisation, GST and the built environment industry’ organised jointly by RICS School of Built Environment, Amity University and National Institute of Urban Affairs (NIUA) on Thursday evening (16 November) in New Delhi, attempted a threadbare analysis of the impact of demonetisation and GST on the real estate sector.

In his inaugural presentation, noted economist Arun Kumar, Malcom S Adiseshiah, Chair professor, Institute of Social Sciences pointed out that the present form of GST was not 'full GST' as it kept real estate, alcohol, electricity and petroleum out of its ambit. “Now, if tax to GDP ratio rises, it’ll give rise to inflation. As a result, demand will fall and the rate of growth (will) decrease, which is contrary to what GST promised. The small and unorganised sector has been ignored and this sector can’t deal with GST due to its complexities. While demonetisation has put the economy on the downslide, the GST implementation has aggravated the condition. The poor have been marginalised in the process. Demonetisation and GST are the two big shocks,” he remarked.

On the possible impact of demonetisation on large real estate projects, Prof Kumar said demonetisation had resulted in decline of growth rate and GDP, and rise in deficit. “As the government won’t like fiscal deficit to go up, the demand in the sector will go down.”

Responding on a positive note, Arun Gupta, partner, SARC Associates said, “Demonetisation to some extent has led to an increase in tax compliance at present.” However, he mentioned, “GST in theory is a good system, but the way it was promised and projected during implementation, the government lost its way. There is a big lag between the plan and the outcome.”

Is demonetisation just a blip or has it had a much deeper impact on the economy? In response, Prashant Agarwal, partner (Indirect Taxes) at Pricewaterhouse Coopers said, “It was a shock therapy. Even after one year, we fail to know the significance of demonetisation or even implementation of GST. If we talk about these two actions or reforms, while PM Modi gained a Robin Hood image, the economists including former PM Manmohan Singh mentioned it as ‘shocking impact’. ”

Jagan Shah, director, NIUA observed, “Lack of implementation of policy interventions has impacted the sector. I don’t believe it’s a blip per se; but it’s a sign for a paradigm shift."

Arun Kumar said that theoretically demonetisation won’t tackle black economy. “Demonetisation has hit investment and output. Credit off-take has declined. These are long-term effects. Investment can revive, once capacity utilisation picks up. Both public and private sectors have to boost investment, but it’s a Catch 22 situation.”

Gaurav Gupta, director, SG Estates Limited observed that after two decades people might not remember demonetisation, but it temporarily sucked up cash from the system. The move came as a shock and its biggest impact was on the unorganised sector. Probably, demonetisation wasn’t required, especially when government was implementing the GST.

Summing up the first round, panel moderator and associate dean and director, RICS School of Built Environment, Amity University, Sunil Agarwal said, “It’s not a blip as in the long-term people would remember the impact of demonetisation.”

Has GST adversely impacted the real estate sector? Panellists unanimously opined that while the intention of GST was good, its implementation and rates led to more confusion. They suggested that the government needed to address the grey areas, disputes and litigations bothering the real estate sector by taking feedback from the realtors.

The government wanted the entire real estate sector under GST, but it’s half-done, which has been due to the states, said Prashant Agrawal, adding, "There’s an issue of distrust between the Centre and the states as far as revenue sharing is concerned. There are lot of legal issues in real estate sector. The players of this sector need to have a clear perspective and discuss their problems with the government on taxation. However, realising the problem, the government has brought down GST rates.”

In response, Gaurav Gupta said, “Real estate sector’s contribution to GDP is 9 percent and it is the second largest employment generator. The government has brought in lots of regulations, but there is an urgent need to improve the investment climate in this sector. Practical problems need to be resolved."

Explaining the issue, Arun Kumar said, “There’s a need to simplify the process and bring real estate, liquor and petro fully under GST. This will help the sector. But there’s pressure from the states to keep them out and the Centre couldn’t handle it.”

While, the panellists delved into the pros and cons of note ban and GST, there were voices from amongst the audience who questioned the credibility of real estate players. Many shared the view that the decline in growth in the real estate sector started in 2012 — much before demonetisation and GST implementation —because of low credibility.

“Implementation of GST hasn’t contributed much to the slowdown in the real estate sector. Before GST, there was service tax. In fact, barring a few developers, the credibility of a majority has been questionable. They defaulted on the promises they made to their customers. Even banks refused extending credits. Despite taking money from home-buyers, the builders failed to deliver flats. It badly impacted the sector. The need of the hour is to regain confidence of the government, customers and financial institutions,” remarked Captain Vipul Choudhary, a retired army official and director, Olive Green Realty — a real estate consultancy firm.

Former HUDCO CMD, PS Rana questioned why land had been made unaffordable for the masses. “In any project, land cost is the real culprit. For example, a developer buys land at Rs 1 crore from a farmer, but by the time he begins construction, the price shoots up to Rs 10 crore. This makes entire project costlier.”

Moderator Sunil Agarwal said, “The demand in real estate sector is there but it’s in segments. Now, a lot of corporate houses have entered, making the sector more organised. It’s giving credibility to the sector as well.”